Bessent to push residency requirement for regional US Fed bank presidents

The move, which would give the White House more authority over the independent agency, would be a new requirement that the Federal Reserve’s regional bank presidents must reside in their districts for at least three years before taking office, according to US Treasury Secretary Scott Bessent.

Bessent said at the New York Times’ DealBook Summit on Wednesday that “there is a disconnect with the framing of the Federal Reserve” and that “we’re going to veto them unless they have lived in their district for three years.”

After several of the Fed’s 12 regional bank presidents made it clear in a series of speeches that they were opposed to cutting the key rate at its upcoming meeting in December, Bessent has increased his criticism of them. The Fed has been harshly criticized by US President Donald Trump because it doesn’t lower its short-term interest rate more quickly. When the Fed lowers its rate, mortgage, auto, and credit card borrowing costs can gradually go down.

The possibility of the administration “vetoing” regional bank presidents would be a further step in its effort to have more control over the Fed, a body that has traditionally been independent of daily politics.

By setting a short-term interest rate that affects the economy’s borrowing costs, the Federal Reserve wants to keep prices in check and encourage hiring.

complicated structure

A seven-member board of governors with headquarters in Washington as well as 12 regional banks with headquarters in particular US districts make up the Fed’s complicated structure. The Federal Reserve Act’s system, which was established to ensure that Washington’s central bank policy incorporated input from officials from all over the country, not just political appointees.

Regional bank presidents are exempt from any residency requirements under the Federal Reserve Act. Regional Fed institutions have repeatedly argued that merit and ability are factors in their decision-making when selecting new leaders.

Every interest-rate decision is influenced by the seven governors and the New York Fed president, and four of the remaining 11 presidents rotate. However, all presidents are present at Fed interest-rate setting committee meetings.

Bessent, who is deciding who to recommend to Trump as the replacement for Fed Chair Jerome Powell, disagreed with the system’s design philosophy.

Bessent asserted in an interview with CNBC last month that the regional Fed banks wanted to “break the New York hold” on interest rates and bring the district’s perspective into Fed decision-making.

He claimed last month that “three, perhaps four” of the Fed presidents were chosen from outside their districts, with some of them residing in New York.